Weidmann cites litany of long-term dangers from loose monetary
Send a link to a friend
[July 18, 2014]
MADRID (Reuters) - European
Central Bank policymaker Jens Weidmann said on Friday that loose
monetary policy had "done its bit" to maintain price stability in
the euro zone, but cited a litany of long-term dangers from easy
The ECB cut rates to record lows last month as part of a package of
measures to breathe life into a sluggish euro zone economy, where
inflation is running far below the central bank's target and there
is a dearth of credit to smaller firms.
The hawkish Weidmann, whose role as Bundesbank president gives him a
seat on the ECB's policymaking Governing Council, said it was
essential to prevent an excessively long period of low inflation as
that "could paralyze the euro area's economy."
But he added that the ECB's monetary policy could not resolve the
euro zone debt crisis.
"In the long term, the ultra-loose monetary policy poses risks to
financial stability," Weidmann said with reference to the policy
decisions announced by the ECB in June.
"There is a danger of exaggerations on the asset and real estate
markets - just think of the hunt for yield," he added in the text of
a speech entitled, 'Towards a more stable European monetary union',
for delivery at the Madrid stock exchange.
"Low interest rates also ease the pressure on governments to
vigorously tackle their countries' problems," he said. "There is a
danger that the low interest rates will be used not to consolidate
budgets, but to finance additional spending."
Pressing governments to respect European budget rules and keep up
economic reforms, he said an excessively generous interpretation of
leeway in fiscal rules enshrined in Europe's Stability and Growth
Pact would undermine its credibility.
Weidmann's comments came against the backdrop of a debate among euro
zone policymakers about the flexibility of their fiscal rules, with
Italian Prime Minister Matteo Renzi leading calls to move from
austerity to expansion.
[to top of second column]
The Bundesbank chief said the Eurosystem of euro zone central banks
- the ECB and its stakeholders - must not give governments an easy
ride by leaving interest rates lower than necessary to deliver
"So it is particularly important to make it quite clear now that the
Eurosystem will not put off a necessary increase in central bank
interest rates out of consideration for public finances," Weidmann
"Looking at the euro area, I would therefore say that monetary
policy has done its bit towards maintaining price stability," he
added. "Finally, monetary policy must not allow itself to be
misappropriated for fiscal policy purposes."
(Reporting by Paul Day; Writing by Paul Carrel Editing by Jeremy
[© 2014 Thomson Reuters. All rights
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed.